Italy shocks banks with 40% windfall tax for 2023

italy-shocks-banks-with-40%-windfall-tax for-2023
Italy shocks banks with 40% windfall tax for 2023

Italy has approved a one-off 40% tax on profits banks earn from higher interest rates. This decision comes after the government criticized lenders for keeping deposit rates low. The move has caused banking shares to plummet across Europe. Other countries, such as Spain and Hungary, have already implemented windfall taxes on the banking sector, and more may follow suit.

The Italian Prime Minister’s government had previously considered a windfall tax on banks but seemed to have abandoned the idea. However, the issue resurfaced when banks reported bumper first-half results, prompting the government to take action before the summer political shutdown. The plan came as a surprise to some ministers at the cabinet meeting.

As a result of the tax announcement, Italy’s banking share index dropped 7.4%, with top banks Intesa Sanpaolo and UniCredit experiencing significant declines. This decline also affected the European banking index, which fell 2.4%. Moody’s downgrade of some U.S. banks further contributed to the decline in bank shares.

Deputy Prime Minister Matteo Salvini highlighted the substantial profits banks have made and emphasized that the burden on households and businesses has doubled while deposit rates have not increased. The government intends to use the tax proceeds to assist those struggling with the cost of living, including mortgage holders.

Analysts estimate that the tax could reduce Italian banks’ net income for 2023 by nearly a fifth. The Treasury expects to collect less than 3 billion euros from the measure, similar to the windfall tax on energy companies. The tax will be applied only in 2023, with banks required to pay the sums by June 30, 2024. It will be based on the net interest margin (NIM), which measures the income banks generate from the difference between lending and deposit rates.

Intesa Sanpaolo, for example, expects to earn over 13.5 billion euros this year from its net interest margin alone. Italian banks have reported stronger-than-expected results for the first six months and have upgraded their profit outlook due to higher interest rates. Unlike banks in other European countries, Italian banks did not charge for deposits when official rates fell below zero. While they have reduced current account costs, they have not rewarded cash held in those accounts, arguing that it is meant for day-to-day use rather than investment.

In conclusion, Italy’s decision to impose a one-off tax on banks’ profits from higher interest rates has caused a significant impact on the banking sector. The government aims to address the issue of low deposit rates and use the tax proceeds to support those facing financial challenges. The tax will be applied in 2023 and is based on the net interest margin. Italian banks have experienced strong financial performance but have faced criticism for not rewarding depositors.

About News Team

Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

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